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2nd Circuit Affirms Individual Owners of Debt Collector Companies Personally Liable for Companies’ FDCPA and FTCA Violations

The Second Circuit recently held that it was proper to find two individual co-owners and co-directors of several corporate debt collector entities personally liable for $10,852,396 after such entities violated the Federal Trade Commission Act (FTCA) and the Federal Fair Debt Collection Practices Act (FDCPA).

In FTC v. Federal Check Processing, Inc., the FTC brought suit against thirteen corporate debt collector entities and the two co-owners and co-directors of such entities, alleging that the defendants’ combined debt collection practices violated the FDCPA and FTCA.  The corporate defendants’ business consisted primarily of collecting payday loan debts, which they bought from consumer-debt creditors and compiled into debt portfolios.  On summary judgement, the U.S. District Court for the Western District of New York found that the corporate defendants directed nearly all of their approximately twenty‐five employee‐debt collectors to routinely contact debtors by telephone and falsely identify themselves as ʺprocessors,ʺ ʺofficers,ʺ or ʺinvestigatorsʺ from a ʺfraud unitʺ or ʺfraud division,ʺ then accuse debtors of check fraud or a related crime and threaten them with criminal prosecution if they did not pay their debts.  Moreover, on certain occasions, the collectors called friends, family members, employers, or co‐workers of debtors, informing them that the debtors owed a debt, had committed a crime in failing to pay it, and faced possible legal repercussions.  If debtors or other interested parties sought further information about the debt, the collectors typically refused to provide such information.  The district court held that the corporate defendants had violated the FTCA and FDCPA, and that the two individual co-owners and co-directors were personally liable for $10,852,396, the amount of money that the defendants had received because of the violations.

On appeal, one of the individual defendants did not contest the district court’s conclusion that the corporate defendants violated the FTCA and FDCPA.  Instead, he argued that the court erred by concluding that he was personally liable for the violations and setting the measure of equitable monetary relief as the total proceeds of the debt collection enterprise.  The Second Circuit, however, affirmed the district court’s ruling that the individual defendant had both sufficient authority over the corporate defendants, as well as knowledge of their practices, to be held individually liable for their misconduct as a matter of law.  Indeed, the individual defendant was a co‐founder, co‐owner, co‐director, and general manager of all but potentially one of the corporate defendants.  He also maintained a personal office within the corporate defendants’ office and a desk in the ʺcollection callʺ area from which dunning calls were made by the companiesʹ employees.  Finally, he had signature authority with respect to the companiesʹ bank accounts, and in the more than four years at issue, received approximately $1.3 million in compensation from the corporate defendants.

Further, the Second Circuit concluded that the district court’s disgorgement assessment was in an appropriate amount because it was a reasonable approximation of the total amounts received by the defendant companies from consumers as a result of their unlawful acts.